What does it mean to have high liquidity in an asset?

Having high liquidity in an asset means that it can be quickly converted to cash with minimal loss. Liquidity refers to how easily and quickly an asset can be sold or exchanged for cash without significantly impacting its market price. Highly liquid assets, like cash or stocks of large, well-known companies, can be sold nearly instantly and typically retain their value relatively well in the process.

This rapid conversion feature is crucial for individuals or businesses that need access to cash for immediate obligations or investments, as it allows them to respond to financial needs or opportunities without facing a significant loss on their asset's value. In contrast, other considerations such as an asset being tied up in long-term investments or generating interest income do not directly relate to liquidity.